What is meant by the funding cost of a derivative?
Trent Di
Numerous sources refer to the 'funding cost' of a derivative. I'm confused as to exactly what cost is being referred to here. To illustrate my confusion, consider purchasing an uncollateralised OTC gold forward at market (with value of 0). I have not needed to fund anything. Now consider that forward going into the money with some positive PV. I still have not funded anything (and will not need to fund anything), and I will collect my payout at maturity. Similarly instead consider that forward g